Republic of the
Supreme Court
THIRD DIVISION
|
STEELCASE, INC., Petitioner, - versus - DESIGN
INTERNATIONAL SELECTIONS,
INC.,
Respondent. |
|
G.R. No. 171995 Present: VELASCO, JR., J., Chairperson, PERALTA, ABAD, PERLAS-BERNABE,
JJ. Promulgated: April 18, 2012 |
x-----------------------------------------------------------------------------------------x
D E C I S I O N
MENDOZA, J.:
This is a petition for review on
certiorari under Rule 45 assailing the March 31, 2005 Decision[1] of
the Court of Appeals (CA) which affirmed the May 29, 2000 Order[2] of
the Regional Trial Court, Branch 60, Makati City (RTC), dismissing the
complaint for sum of money in Civil Case No. 99-122 entitled Steelcase, Inc.
v. Design International Selections, Inc.
The Facts
Petitioner Steelcase, Inc. (Steelcase) is a foreign corporation existing
under the laws of
Sometime in 1986 or 1987, Steelcase
and DISI orally entered into a dealership agreement whereby Steelcase granted
DISI the right to market, sell, distribute, install, and service its products
to end-user customers within the
On
In its Answer with Compulsory Counterclaims[7] dated February 4, 1999,
DISI sought the following: (1) the issuance of a temporary restraining order (TRO)
and a writ of preliminary injunction to enjoin Steelcase from selling its
products in the Philippines except through DISI; (2) the dismissal of the
complaint for lack of merit; and (3) the payment of actual, moral and exemplary
damages together with attorneys fees and expenses of litigation. DISI alleged that the complaint failed to
state a cause of action and to contain the required allegations on Steelcases
capacity to sue in the
On
In his Order[11]
dated November 15, 1999, Acting Presiding Judge Bonifacio Sanz Maceda dismissed
the complaint, granted the TRO prayed for by DISI, set aside the April 26, 1999
Order of the RTC admitting the Amended Complaint, and denied Steelcases Motion
to Admit Second Amended Complaint. The RTC
stated that in requiring DISI to meet the Dealer Performance Expectation and in
terminating the dealership agreement with DISI based on its failure to improve
its performance in the areas of business planning, organizational structure,
operational effectiveness, and efficiency, Steelcase unwittingly revealed that
it participated in the operations of DISI.
It then concluded that Steelcase was doing business in the Philippines,
as contemplated by Republic Act (R.A.) No. 7042 (The Foreign Investments
Act of 1991), and since it did not have the license to do business in the
country, it was barred from seeking redress from our courts until it obtained
the requisite license to do so. Its determination was further bolstered by the
appointment by Steelcase of a representative in the
Steelcase
moved for the reconsideration of the questioned Order but the motion was denied
by the RTC in its
Aggrieved, Steelcase
elevated the case to the CA by way of appeal, assailing the
Steelcase filed a motion for
reconsideration but it was denied by the CA in its Resolution dated
Hence, this petition.
The Issues
Steelcase filed the present petition
relying on the following grounds:
I
THE COURT OF
APPEALS COMMITTED REVERSIBLE ERROR WHEN IT FOUND THAT STEELCASE HAD BEEN DOING
BUSINESS IN THE
II
THE COURT OF
APPEALS COMMITTED REVERSIBLE ERROR IN NOT FINDING THAT RESPONDENT WAS ESTOPPED
FROM CHALLENGING STEELCASES LEGAL CAPACITY TO
The issues to be resolved in this
case are:
(1) Whether or not Steelcase is doing
business in the
(2) Whether or not DISI is estopped
from challenging the Steelcases legal capacity to sue.
The
Court rules in favor of the petitioner.
Steelcase is an unlicensed foreign corporation NOT doing
business in the Philippines
Anent the first issue, Steelcase
argues that Section 3(d) of R.A. No. 7042 or the Foreign Investments Act of
1991 (FIA) expressly states that the phrase doing business excludes
the appointment by a foreign corporation of a local distributor domiciled in
the Philippines which transacts business in its own name and for its own
account. Steelcase claims that it was
not doing business in the Philippines when it entered into a dealership
agreement with DISI where the latter, acting as the formers appointed local
distributor, transacted business in its own name and for its own account. Specifically, Steelcase contends that it was
DISI that sold Steelcases furniture directly to the end-users or customers who,
in turn, directly paid DISI for the furniture they bought. Steelcase further claims that DISI, as a
non-exclusive dealer in the
On
the other hand, DISI argues that it was appointed by Steelcase as the latters
exclusive distributor of Steelcase products.
DISI likewise asserts that it was not allowed by Steelcase to transact
business in its own name and for its own account as Steelcase dictated the
manner by which it was to conduct its business, including the management and solicitation
of orders from customers, thereby assuming control of its operations. DISI
further insists that Steelcase treated and considered DISI as a mere conduit,
as evidenced by the fact that Steelcase itself directly sold its products to
customers located in the
The
Court agrees with the petitioner.
The
rule that an unlicensed foreign corporations doing business in the Philippine
do not have the capacity to sue before the local courts is
well-established. Section 133 of the
Corporation Code of the
Sec. 133. Doing business without a license. - No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns,
shall be permitted to maintain or intervene in any action, suit or proceeding
in any court or administrative agency of the Philippines; but such corporation
may be sued or proceeded against before Philippine courts or administrative
tribunals on any valid cause of action recognized under Philippine laws.
The
phrase doing business is clearly defined in Section 3(d) of R.A. No. 7042
(Foreign Investments Act of 1991), to wit:
d) The phrase doing business shall
include soliciting orders, service contracts, opening offices, whether called
liaison offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay in the country
for a period or periods totalling one hundred eighty (180) days or more;
participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and any other act or
acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of
some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization:
Provided, however, That the
phrase doing business shall not be deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do business, and/or
the exercise of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own name and for
its own account; (Emphases
supplied)
This
definition is supplemented by its Implementing Rules and Regulations, Rule I,
Section 1(f) which elaborates on the meaning of the same phrase:
f. Doing business shall include
soliciting orders, service contracts, opening offices, whether liaison offices
or branches; appointing representatives or distributors, operating under full
control of the foreign corporation, domiciled in the Philippines or who in any
calendar year stay in the country for a period totalling one hundred eighty
[180] days or more; participating in the management, supervision or control of
any domestic business, firm, entity or corporation in the Philippines; and any
other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works,
or the exercise of some of the functions normally incident to and in
progressive prosecution of commercial gain or of the purpose and object of the
business organization.
The following acts shall not be deemed doing business in the
1. Mere investment as a shareholder
by a foreign entity in domestic corporations duly registered to do business,
and/or the exercise of rights as such investor;
2. Having a nominee director or
officer to represent its interest in such corporation;
3. Appointing a representative or distributor domiciled in the
4. The publication of a general
advertisement through any print or broadcast media;
5. Maintaining a stock of goods in
the
6. Consignment by a foreign entity
of equipment with a local company to be used in the processing of products for
export;
7. Collecting information in the
8. Performing services auxiliary to an existing isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, servicing the same, training domestic workers to operate it, and similar incidental services. (Emphases supplied)
From
the preceding citations, the appointment of a distributor in the
In
the case at bench, it is undisputed that DISI was founded in 1979 and is independently
owned and managed by the spouses Leandro and Josephine Bantug.[16] In addition to Steelcase products, DISI also
distributed products of other companies including carpet tiles, relocatable
walls and theater settings.[17] The dealership agreement between Steelcase and
DISI had been described by the owner himself as:
xxx basically a buy and sell
arrangement whereby we would
inform Steelcase of the volume of the products needed for a particular project
and Steelcase would, in turn, give special quotations or discounts after considering
the value of the entire package. In
making the bid of the project, we would then add out profit margin over
Steelcases prices. After the approval
of the bid by the client, we would thereafter place the orders to
Steelcase. The latter, upon our payment,
would then ship the goods to the
This clearly belies DISIs assertion
that it was a mere conduit through which Steelcase conducted its business in
the country. From the preceding facts,
the only reasonable conclusion that can be reached is that DISI was an
independent contractor, distributing various products of Steelcase and of other
companies, acting in its own name and for its own account.
The
CA, in finding Steelcase to be unlawfully engaged in business in the
Another
point being raised by DISI is the delivery and sale of Steelcase products to a Philippine
client by Modernform allegedly an agent of Steelcase. Basic is the rule in corporation
law that a corporation has a separate and distinct personality from its
stockholders and from other corporations with which it may be connected.[19] Thus, despite the admission by Steelcase that
it owns 25% of Modernform, with the remaining 75% being owned and controlled by
Thai stockholders,[20]
it is grossly insufficient to justify piercing the veil of corporate fiction
and declare that Modernform acted as the alter ego of Steelcase to enable it to
improperly conduct business in the
Finally,
both the CA and DISI rely heavily on the Dealer Performance Expectation
required by Steelcase of its distributors to prove that DISI was not
functioning independently from Steelcase because the same imposed certain conditions
pertaining to business planning, organizational structure, operational
effectiveness and efficiency, and financial stability. It is actually logical to expect that
Steelcase, being one of the major manufacturers of office systems furniture,
would require its dealers to meet several conditions for the grant and
continuation of a distributorship agreement. The imposition of minimum
standards concerning sales, marketing, finance and operations is nothing more
than an exercise of sound business practice to increase sales and maximize
profits for the benefit of both Steelcase and its distributors. For as long as these requirements do not impinge
on a distributors independence, then there is nothing wrong with placing
reasonable expectations on them.
All things considered, it has been sufficiently
demonstrated that DISI was an independent contractor which sold Steelcase
products in its own name and for its own account. As a result, Steelcase cannot be considered
to be doing business in the
DISI is estopped from challenging Steelcases legal
capacity to sue
Regarding the second issue, Steelcase
argues that assuming arguendo that it had been doing business in the
On
the other hand, DISI argues that the doctrine of estoppel cannot give Steelcase
the license to do business in the
The
argument of Steelcase is meritorious.
If indeed Steelcase had been doing
business in the
It cannot be denied that DISI entered
into a dealership agreement with Steelcase and profited from it for 12 years
from 1987 until 1999. DISI admits that
it complied with its obligations under the dealership agreement by exerting more
effort and making substantial investments in the promotion of Steelcase
products. It also claims that it was
able to establish a very good reputation and goodwill for Steelcase and its
products, resulting in the establishment and development of a strong market for
Steelcase products in the
Unquestionably, entering into a
dealership agreement with Steelcase
charged DISI with the knowledge that Steelcase was not licensed to
engage in business activities in the
By acknowledging the corporate entity
of Steelcase and entering into a dealership agreement with it and even
benefiting from it, DISI is estopped from questioning Steelcases existence and
capacity to sue. This is consistent with
the Courts ruling in Communication
Materials and Design, Inc. v. Court of Appeals[22]
where it was written:
Notwithstanding such finding that ITEC is
doing business in the country, petitioner is nonetheless estopped from raising
this fact to bar ITEC from instituting this injunction case against it.
A foreign corporation doing business in the
The rule is deeply rooted in the
time-honored axiom of Commodum ex injuria sua non habere debet no person
ought to derive any advantage of his own wrong. This is as it should be for as
mandated by law, every person must in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.
Concededly, corporations act through
agents, like directors and officers. Corporate dealings must be characterized
by utmost good faith and fairness. Corporations cannot just feign ignorance of
the legal rules as in most cases, they are manned by sophisticated officers
with tried management skills and legal experts with practiced eye on legal
problems. Each party to a corporate transaction is expected to act with utmost
candor and fairness and, thereby allow a reasonable proportion between benefits
and expected burdens. This is a norm which should be observed where one or the
other is a foreign entity venturing in a global market.
xxx
By entering into the "Representative
Agreement" with ITEC, petitioner is charged with knowledge that ITEC was
not licensed to engage in business activities in the country, and is thus
estopped from raising in defense such incapacity of ITEC, having chosen to
ignore or even presumptively take advantage of the same.[23]
(Emphases supplied)
The case of Rimbunan Hijau Group of Companies v. Oriental Wood Processing Corporation[24]
is likewise instructive:
Respondents unequivocal admission of the
transaction which gave rise to the complaint establishes the applicability of
estoppel against it. Rule 129, Section 4 of the Rules on Evidence provides that
a written admission made by a party in the course of the proceedings in the
same case does not require proof. We held in the case of Elayda v. Court of
Appeals, that an admission made in the pleadings cannot be controverted by the
party making such admission and are conclusive as to him. Thus, our consistent
pronouncement, as held in cases such as Merril
Lynch Futures v. Court of Appeals, is apropos:
The rule is that a party is estopped to
challenge the personality of a corporation after having acknowledged the same
by entering into a contract with it. And the doctrine of estoppel to deny
corporate existence applies to foreign as well as to domestic corporations; one
who has dealt with a corporation of foreign origin as a corporate entity is
estopped to deny its existence and capacity. The principle will be applied to
prevent a person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes, chiefly in cases where such
person has received the benefits of the contract . . .
All things considered, respondent can no
longer invoke petitioners lack of capacity to sue in this jurisdiction.
Considerations of fair play dictate that after having contracted and benefitted
from its business transaction with Rimbunan, respondent should be barred from
questioning the latters lack of license to transact business in the
Philippines.
In the case of Antam Consolidated, Inc. v. CA, this Court noted that it is a
common ploy of defaulting local companies which are sued by unlicensed foreign
corporations not engaged in business in the
As a matter of principle, this Court will
not step in to shield defaulting local companies from the repercussions of
their business dealings. While the doctrine of lack of capacity to sue based on
failure to first acquire a local license may be resorted to in meritorious
cases, it is not a magic incantation. It cannot be called upon when no evidence
exists to support its invocation or the facts do not warrant its application. In this case, that the respondent is
estopped from challenging the petitioners capacity to sue has been
conclusively established, and the forthcoming trial before the lower court
should weigh instead on the other defenses raised by the respondent.[25]
(Emphases supplied)
As shown in the previously cited
cases, this Court has time and again upheld the principle that a foreign
corporation doing business in the Philippines without a license may still sue
before the Philippine courts a Filipino or a Philippine entity that had derived
some benefit from their contractual arrangement because the latter is
considered to be estopped from challenging the personality of a corporation
after it had acknowledged the said corporation by entering into a contract with
it.[26]
In Antam Consolidated, Inc. v.
Court of Appeals,[27]
this Court had the occasion to draw attention to the common ploy of invoking
the incapacity to sue of an unlicensed foreign corporation utilized by
defaulting domestic companies which seek to avoid the suit by the former. The Court cannot allow this to continue by
always ruling in favor of local companies, despite the injustice to the
overseas corporation which is left with no available remedy.
During this period of financial
difficulty, our nation greatly needs to attract more foreign investments and
encourage trade between the
WHEREFORE,
the
SO ORDERED.
JOSE CATRAL
Associate Justice
WE CONCUR:
PRESBITERO
J. VELASCO, JR.
Associate Justice
Chairperson
DIOSDADO M.
PERALTA ROBERTO A.
ABAD
Associate
Justice Associate Justice
ESTELA M.
PERLAS-BERNABE
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.
PRESBITERO
J. VELASCO, JR.
Associate Justice
Chairperson,
Third Division
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII of the
Constitution and the Division Chairpersons Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
RENATO
C. CORONA
Chief Justice
[1] Rollo, pp. 6-17 (Penned by Associate Justice Roberto A. Barrios and concurred in by Associate Justice Amelita G. Tolentino and Associate Justice Vicente S.E. Veloso).
[2] Id. at 384-386.
[3] Id. at 25.
[4] Id. at 1018.
[5] Id. at 81.
[6] Id. at 95-102.
[7] Id. at 103-138.
[8] Id. at 139-158.
[9] Id. at 180.
[10] Id. at 202-207.
[11] Id. at 224-229.
[12]
[13] Id. at 93-94.
[14] La Chemise Lacoste, S.A. v. Fernandez, 214 Phil. 332, 342 (1984).
[15] Top-Weld Manufacturing, Inc. v.
[16] Rollo, pp. 596.
[17]
[18]
[19] Francisco
Motors Corporation v. Court of Appeals, 368 Phil. 374, 384 (1999).
[20] Rollo, p. 987.
[21]
[22] 329 Phil. 487 (1996).
[23]
[24] 507
Phil. 631 (2005).
[25]
[26] Global Business Holdings, Inc. v. Surecomp Software, B.V., G.R. No. 173463, October 13, 2010, 633 SCRA 94, 103-104.
[27] 227
Phil. 267, 276 (1986).